National Bank Trust v Yurov & Ors

A freezing order obtained without notice is subject to a strict duty of full and frank disclosure. Materiality concerns facts which the judge would need or wish to consider. Material non-disclosure ordinarily points towards discharge, especially where substantial or deliberate, but the court retains a discretion governed by the interests of justice.

A freezing order requires solid evidence of a current, real risk that unjustified dealings will frustrate enforcement. Dishonesty alone is insufficient. Fraud combined with the dishonest use of offshore structures and evidence of an attempt to place assets beyond reach may provide powerful support for the inference.

The claimant Russian bank alleged that its former directors and shareholders had caused it to make approximately US $830 million in improper loans through a network of offshore companies. It obtained a freezing order without notice against the defendants.

The first defendant and his wife applied to discharge the order. They alleged multiple breaches of the bank’s duty of full and frank disclosure and denied that there was a real risk of dissipation. The court had to determine whether material non-disclosure had occurred, whether a current risk of dissipation was established and, if so, whether the interests of justice required the order to be discharged or continued.

1. The application to discharge the freezing order was dismissed and the order continued. The bank had failed to disclose three material matters: the existence and potential significance of the first defendant’s employment contract; the bank’s ancillary civil claim in the Russian criminal proceedings; and the full terms of its settlement agreement with an important witness. The remaining allegations of non-disclosure were not established.

2. A fact is material to a without-notice application if it is one which the judge would need or wish to take into account. Discharge is the usual starting point for a substantial or deliberate failure. The court nevertheless retains a discretion to continue the injunction or grant a fresh injunction. The overriding consideration is the interests of justice, including the importance of the omitted fact, culpability, deterrence of non-compliance and the injustice caused by permitting dissipation.

3. The failures concerning the employment contract and settlement agreement were substantial or important, while omission of the Russian civil claim was relatively trivial. All three were innocent in the relevant sense: there had been no intention to omit information appreciated to be material. Full disclosure would not have altered the conclusion that the bank had a good arguable case and that a freezing order should be made.

4. Non-disclosure applications should not become preliminary trials of disputed facts. In complex litigation the claimant must identify foreseeable defences and difficulties fairly, but need not analyse every conceivable point. A defendant must state alleged failures clearly and with restraint.

5. A freezing order requires solid evidence of a current, real risk that unjustified dealings with assets will make a defendant judgment-proof. Dishonesty must be scrutinised for its bearing on that risk. Relevant matters include the nature and location of assets, existing restraints and the defendant’s response to the claim.

6. The risk was established. The admitted use of opaque offshore structures to conceal beneficial ownership, the apparent disappearance of substantial funds and the attempted transfer of valuable assets for deferred consideration at about half their value provided powerful and solid evidence of a current risk of dissipation. Discharge would therefore expose the bank to disproportionate injustice. The court invited submissions on whether the failures should be marked in costs.

not stated in the judgment.